Walgreens PE Buyout Heavily Reliant on Debt, Raising Concerns

What You Should Know: 

– The recent acquisition of Walgreens Boots Alliance by private equity firm Sycamore Partners is drawing scrutiny due to the high level of debt financing involved and questions surrounding Sycamore’s equity commitment.

– According to a Securities and Exchange Commission (SEC) filing, 83.4% of the financing for the Walgreens buyout is debt, totaling $22.5B. This is more than double the average debt level (41%) used in private equity acquisitions last year.

PESP Raises Alarms About Potential Risks

The non-profit watchdog Private Equity Stakeholder Project (PESP) has released a statement expressing concern about the leveraged buyout of Walgreens. PESP emphasizes the risks associated with private equity investment in healthcare companies, citing the potential for:

• Increased bankruptcy risk: Leveraged buyouts often saddle companies with substantial debt, draining resources that could be used for investment and growth.
• Jeopardized patient care: Cost-cutting measures implemented to service debt can negatively impact patient care and access to necessary medications.
• Job insecurity: Restructuring and potential bankruptcies can lead to job losses and economic disruption in communities.

Sycamore Partners’ History of Bankruptcies

PESP highlights Sycamore Partners’ history of bankruptcies at portfolio companies, including Belk and Nine West. The bankruptcy of Nine West resulted in the closure of 70 stores and mass layoffs. Another retailer, Aeropostale, claimed that onerous terms from Sycamore Partners-owned apparel sourcing company contributed to its bankruptcy.

Walgreens’ Workforce and Community Impact

Walgreens Boots Alliance employs approximately 312,000 workers. PESP emphasizes the importance of Walgreens’ role in providing access to prescription drugs and its significant impact on the communities it serves. The organization expresses concern that the private equity buyout model could negatively impact these stakeholders.